Elephant in the room

Barclays’ latest money-laundering thwack is both depressingly familiar and oddly reassuring. Familiar because it’s a reminder of an aggressive culture the UK lender is struggling to sweep away. Reassuring because regulators like the Financial Conduct Authority are no longer asleep at the wheel, which makes future misdemeanours less likely.

The 72 million pound fine levied on Nov. 26 is a punishment for Barclays cutting corners in the service of unnamed super-rich clients. The FCA didn’t have a problem so much with the “politically exposed persons” themselves, but with Barclays subverting its own anti-money-laundering processes and keeping its dealings off its main computer systems to “rush through” what one senior – and unnamed – manager called “the deal of the century.” In one case, physical documents couldn’t be found because they had been put in a specially-purchased safe, the location of which was known to only a select few.

It’s easy to see why the failings happened, and why they could again. The 2011 deal in question was so named because Barclays’ wealth managers wanted the 52 million pounds of fees from clients investing 1.9 billion pounds in a structured transaction with a specified rate of return. Of course they did: even deals worth 20 million pounds were seen internally as “elephants”. As a review by lawyer Anthony Salz elaborately documented in 2013, Barclays’ regulatory rap sheet – fiddling Libor, rewarding ex-employees before shareholders via the off-balance sheet Protium structure – showed a culture that was not inclined to ask searching questions.

The good news is that regulators are no longer waiting for banks to reform themselves. Aside from fining the corporate entity, the UK’s new “senior managers regime” can ultimately send miscreants to jail. In time, this should dispel indulgence of risky clients who benefit the bottom line – precisely the environment where money laundering flourishes.

Despite its hit, Barclays should also benefit. If new Chief Executive Jes Staley ever fancied returning the bank to its high-octane pre-2012 days, he will be less inclined to now.

Source: REUTERS/Neil Hall

The Barclays headquarters building is seen in the Canary Wharf business district of east London.

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Context News

Barclays has been fined 72.1 million pounds ($109 million) by Britain’s financial conduct regulator for failing to do sufficient due diligence on a 1.9 billion pound structured finance transaction for unnamed, politically sensitive clients.

The trades, which took place in 2011 and 2012, involved setting up structured investments designed to create a specified return over several decades, with a full capital guarantee, according to a notice released by the Financial Conduct Authority on Nov. 26, but dated Nov. 25.

The UK bank applied a lower level of financial diligence than required for other less risky business relationships, the FCA found. One senior manager expressed a desire to “race this through”, while another referred to the trade as “the deal of the century”.

Barclays was initially unable to supply information on the unnamed clients, because it had kept some documents in a specially purchased safe, the location of which was known only to a few people.

Separately, Barclays was named in a class action lawsuit filed on Nov. 25 accusing 10 large banks and two trading platforms of conspiring to limit competition in the $320 trillion market for interest rate swaps, Reuters reported.

Barclays said it had cooperated fully with the FCA throughout and continued to apply significant resources and training to ensure compliance with all legal and regulatory requirements.